The private sector’s long-standing demand that they be allowed to invest abroad could be addressed, with the budget and monetary policy both talking about amending the Act governing overseas investment by Nepalis.
An amendment to the “Ban on Nepali Investment in Foreign Countries Act 1964” will pave the way for Nepalis to invest abroad, according to the government officials.
However, this is not the first time the budget has talked about amending the Act. In the budget for 2007-08, Finance Minister Ram Sharan Mahat had announced a provision for allowing Nepalis to invest overseas.
Then, the Finance Ministry had considered three provisions: establishing a mutual fund by financially sound banks with their majority equity participation; allowing Nepalis to investment abroad through technology transfer of technology; and permitting Nepal-based holding companies to establish subsidiaries in foreign countries.
Two years later, the budget for 2009-10 also mentioned about formulating necessary laws for the expansion of Nepalese entrepreneurship and technology.
Former Finance Secretary Rameshwar Khanal said a draft Act allowing Nepalis to invest abroad had reached the Cabinet during the Puspa Kamal Dahal-led government. However, the government stepped back after the country plunged into balance of payment (BoP) crisis in 2009. “The government could not dare to move ahead with the bill as the country witnessed a huge BoP deficit as a result of massive imports, particularly gold,” he said.
With the country’s foreign exchange reserves and balance of payments (BoP) now in a comfortable position, the government is once again working to put in place legal provisions for allowing Nepalis to invest abroad. “As the situation foreign exchange reserves are healthy and the remittance income is growing, it is better to allow the private sector to make investment abroad,” Finance Secretary Yubaraj Bhusal said.
Nepal Rastra Bank (NRB) is planning to draft an amendment bill to the “Ban on Nepali Investment in Foreign Countries Act 1964”. “We are holding discussions if a provision allowing Nepalis to invest abroad could be incorporated in the amendment to the Foreign Exchange Act,” said NRB Deputy Governor Gopal Prasad Kafle. “However, either to incorporate the provision in the Foreign Exchange Act or to draft separate Act will be done as per the government’s suggestion.”
The central bank, however, plans to put in place certain conditions, considering potential threats to the economy. “The door might be opened by fixing certain conditions on the size of the foreign exchange that could be taken away, limiting sectors where investment can be made and making a compulsory provision that dividends earned aboard should be repatriated,” he said.
In the previous draft that too, certain limits in investment areas were imposed. Khanal said the door was opened particularly in hotels, restaurants, software, banking, handicrafts and industries related to food, provided the investors maintain headquarters in Nepal. “The draft also had a provision that companies investing abroad had to take Nepali workers and engineers in their foreign projects,” he added.
Experts and government officials say allowing overseas direct investment has been necessary as it not only helps end capital flight, but also opens new avenues for Nepali corporations to expand their businesses.
A report titled “Illicit Financial Flows from the Least Developed Countries: 1990-2008” had placed Nepal in the sixth position. The report said $480.4 million (Rs 34.73 billion) went out of Nepal annually on an average.
According experts, exposure to foreign market will help the Nepali corporate sector to become more competitive internationally and efficient. “It may help create Nepali multinational companies,” said another NRB Deputy Governor Maha Prasad Adhikari.
The Nepali private sector has also welcomed the government’s move. Federation of Nepalese Chambers of Commerce and Industry (FNCCI) President Pradeep Jung Pandey said if Nepalis are allowed to invest abroad, money goes to foreign countries legally and returns back through legal channels. “Experienced Nepali companies can perform well globally,” he said. However, the previous FNCCI leadership was against allowing Nepalis to invest abroad. “There is a general consensus on the matter in the new executive committee that Nepalis should be allowed to invest abroad,” said Pandey.
Another business body, the Confederation of Nepalese Industries has long been lobbying in favour of allowing overseas investment.
source: the kathmandu post,20 july 2014
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